Cyprus-Forum.com

[Paphitis]

DT,

I understand what you are saying and usually when a bank sells some NPL's it does so voluntarily and they would be only too happy because there would be reasons why they need to do so.

But a bank which gives off some debt and only get's 7 cents in a Euro has lost money from its bottom line. It comes off their profit/loss. They in fact have lost 93% minus any earned interest. Obviously it's a bit more complicated than that because inflation needs to be factored in it as well.

Now, for a bank making Billions in profit, it may not be an issue for them, but nevertheless it's still a loss.

Effectively, they are writing off assets from their balance sheet. It's a write off!

[Robin Hood]

Paphitis ...... I am sorry to contradict you but your concept of how banks operate is completely wrong! It is the way that +99.9% of the population BELIEVE it works ...... but it doesn’t! Now I wonder why nobody bothered to tell us?

Commercial Banks really DO create money out of thin air and this money is also destroyed when the loan is repaid. Banks do not even need deposits to create ‘loans’ because, as I said, in reality they do not actually lend anything. The money is created when you spend to the level of credit the bank has given you and the recipient pays it into his account, thus creating new money as a deposit..... they do not lend money they simply debit your credit/loan account on the assumption you will repay it. It is when you DON’T pay that the trouble starts for this system.

I accept that the concept is very difficult to believe but I can assure you it is true but, if you don’t believe me how about from the ‘horses-mouth’ so to speak .........

http://www.bankofengland.co.uk/publications/Documents/quarterlybulletin/2014/qb14q1prereleasemoneycreation.pdf

It really is worth the time it takes to read and understand this but, once you crack the principal you will see the dangers this presents to the global financial system because ALL the banks work the same way.

[Paphitis]

RH,

the Banks provide a service and they must be capitalized to a certain extend to support the fractional banking system - otherwise what is the point of all the stress test?

No they can't create money as they go along. The money must be secured against their reserves, and they get their reserves from customers, financial markets and central bank. If it were the case that Banks can just create money by extending IOUs then why do some Banks have a greater capacity than others. my not just keep doing this? because there is a limit to how far they can go.

What they do is not scary at all. We have had this system for over a Century and the keep the Global Economy and markets ticking. Without them, we will be in economic oblivion. Imagine business and investors not being funded? how many people will be out of work overnight!

What is scary is the extent of mismanagement that occurred in Cyprus. Elsewhere, the banks are quite healthy and there are many of them. They continue to go from strength to strength. And to be totally honest, without them, everything comes to a grinding halt in the economic landscape.

[Get Real!]

Paphitis ...... I am sorry to contradict you but your concept of how banks operate is completely wrong!

Paphitis’ mouth is the fountain of WRONG… the wellspring of error and the cauldron of fallacy!

[kurupetos]

Paphitis ...... I am sorry to contradict you but your concept of how banks operate is completely wrong!

Paphitis’ mouth is the fountain of WRONG… the wellspring of error and the cauldron of fallacy!

That's because he's been kissing Zionist ass for years...

[Robin Hood]

Paphitis ……. You disappoint me! You didn’t read the link I provided or if you did you you didn’t understand it and that I would find hard to believe.

The Banks provide a service and they must be capitalized to a certain extend to support the fractional banking system - otherwise what is the point of all the stress test?

They do provide a service like any plumber, electrician, road sweeper ….. even an airline pilot, just where would we be without them? But just how much do you know about the intricacies of each profession if you have never read the rule books? If you had read the BoE link you would see that (BoE Link) ”It is loans that create deposits not the other way round.” The stress test as I understand them determine the ability of the bank to cover a percentage of its liabilities, I believe that is now around 10%(?). Your deposit in the bank is of course a liability to the bank …. not an asset, because it is a loan to the bank and has to be repaid (In theory …. The Cyprus bail-in proved that to be not so!)

No they can't create money as they go along. The money must be secured against their reserves, and they get their reserves from customers, financial markets and central bank. If it were the case that Banks can just create money by extending IOUs then why do some Banks have a greater capacity than others. why not just keep doing this? because there is a limit to how far they can go.

Oh yes they do create money as they go along by making loans! (BoE link)“…….. every time a bank makes a loan it creates New Money”. These loans are secured against ‘collateral’ provided by the borrower and not as you list. The central bank holds the reserves and the excess reserves and these are lent between other banks deposits in the CB, but they cannot be loaned otherwise. (This is where LIBOR is applied). The banks capacity is actually only limited by what the market will stand but the CB will normally use interest rates to control the market demand for loans.

What they do is not scary at all. We have had this system for over a Century and the keep the Global Economy and markets ticking. Without them, we will be in economic oblivion. Imagine business and investors not being funded? How many people will be out of work overnight!

Not scary? It is when you know how they do it! Yes the system worked fairly well until the advent of electronic banking and the repeal of the Glass Steagall act. of 1933 by Clinton in 1999. It is now like a pilot trying to land a 777 onto a short runway, at night with no ILS or Approach ATC, no flaps, no air brakes, jammed rudder, no hydraulics and a crew high due to substance abuse ……... but of course the passengers don’t have a clue what is going on ….. keep the lights low and whatever you do ……… DON’T SCREAM !

The system needs banks as distributors of money but not the creators of it. Apart from that reservation ……… you are correct that their services are required

What is scary is the extent of mismanagement that occurred in Cyprus. Elsewhere, the banks are quite healthy and there are many of them. They continue to go from strength to strength. And to be totally honest, without them, everything comes to a grinding halt in the economic landscape

.
Cyprus was not so much a case of mismanagement, because nobody actually broke the rules! They just didn’t have brains to see the dangers ….. all they saw were ever rising assets i.e NPL’s! The longer the period the loans were rolled over, the larger the banks assets because they were collecting interest. Don’t forget the commercial banks come under the watchful eye of the Central Bank and in the case of Cyprus this is the ECB. So how did this happen, how was it ALLOWED to happen?

They (Banks) continue to go from strength to strength

.
The banks worldwide are in crisis! But like the passengers on the 777 nobody is going to tell the rest of us that we are heading for mother of all crashes. But if you knock on the flight deck door and talk to the two guys sitting up front …… you may be able to get some of the truth out of them. They go from strength to strength very true but not by providing a service! They create the very commodity they control. The more they create the more they have to gamble with and the bigger the returns! Unfortunately the bigger the gamble, the greater the loss when it happens and all good things come to an end, eventually.

[CBBB]

Paphitis ……. You disappoint me! You didn’t read the link I provided or if you did you you didn’t understand it and that I would find hard to believe.

The Banks provide a service and they must be capitalized to a certain extend to support the fractional banking system - otherwise what is the point of all the stress test?

They do provide a service like any plumber, electrician, road sweeper ….. even an airline pilot, just where would we be without them? But just how much do you know about the intricacies of each profession if you have never read the rule books? If you had read the BoE link you would see that (BoE Link) ”It is loans that create deposits not the other way round.” The stress test as I understand them determine the ability of the bank to cover a percentage of its liabilities, I believe that is now around 10%(?). Your deposit in the bank is of course a liability to the bank …. not an asset, because it is a loan to the bank and has to be repaid (In theory …. The Cyprus bail-in proved that to be not so!)

No they can't create money as they go along. The money must be secured against their reserves, and they get their reserves from customers, financial markets and central bank. If it were the case that Banks can just create money by extending IOUs then why do some Banks have a greater capacity than others. why not just keep doing this? because there is a limit to how far they can go.

Oh yes they do create money as they go along by making loans! (BoE link)“…….. every time a bank makes a loan it creates New Money”. These loans are secured against ‘collateral’ provided by the borrower and not as you list. The central bank holds the reserves and the excess reserves and these are lent between other banks deposits in the CB, but they cannot be loaned otherwise. (This is where LIBOR is applied). The banks capacity is actually only limited by what the market will stand but the CB will normally use interest rates to control the market demand for loans.

What they do is not scary at all. We have had this system for over a Century and the keep the Global Economy and markets ticking. Without them, we will be in economic oblivion. Imagine business and investors not being funded? How many people will be out of work overnight!

Not scary? It is when you know how they do it! Yes the system worked fairly well until the advent of electronic banking and the repeal of the Glass Steagall act. of 1933 by Clinton in 1999. It is now like a pilot trying to land a 777 onto a short runway, at night with no ILS or Approach ATC, no flaps, no air brakes, jammed rudder, no hydraulics and a crew high due to substance abuse ……... but of course the passengers don’t have a clue what is going on ….. keep the lights low and whatever you do ……… DON’T SCREAM !

The system needs banks as distributors of money but not the creators of it. Apart from that reservation ……… you are correct that their services are required

What is scary is the extent of mismanagement that occurred in Cyprus. Elsewhere, the banks are quite healthy and there are many of them. They continue to go from strength to strength. And to be totally honest, without them, everything comes to a grinding halt in the economic landscape

.
Cyprus was not so much a case of mismanagement, because nobody actually broke the rules! They just didn’t have brains to see the dangers ….. all they saw were ever rising assets i.e NPL’s! The longer the period the loans were rolled over, the larger the banks assets because they were collecting interest. Don’t forget the commercial banks come under the watchful eye of the Central Bank and in the case of Cyprus this is the ECB. So how did this happen, how was it ALLOWED to happen?

They (Banks) continue to go from strength to strength

.
The banks worldwide are in crisis! But like the passengers on the 777 nobody is going to tell the rest of us that we are heading for mother of all crashes. But if you knock on the flight deck door and talk to the two guys sitting up front …… you may be able to get some of the truth out of them. They go from strength to strength very true but not by providing a service! They create the very commodity they control. The more they create the more they have to gamble with and the bigger the returns! Unfortunately the bigger the gamble, the greater the loss when it happens and all good things come to an end, eventually.

There is no bubblechris on here to believe your drivel.

[Robin Hood]

CBBB:

There is no bubblechris on here to believe your drivel.

At least BC can formulate an opinion, whether you agree with it or not ...... all you can ever manage are irrelevant one liners! You don't really have much that is of significance to say about anything do you? I suppose when you know very little about a subject, any subject apparently ...... it would appear to you as drivel. So crawl back into your tool box Spanner until you know what you are talking about.

PV

[Paphitis]

Paphitis ……. You disappoint me! You didn’t read the link I provided or if you did you you didn’t understand it and that I would find hard to believe.

You are right. I did not read the link. I have only just now partially read it. There are a number of things that are not quite right about that article just on page 1 and I will elaborate.

The Banks provide a service and they must be capitalized to a certain extend to support the fractional banking system - otherwise what is the point of all the stress test?

They do provide a service like any plumber, electrician, road sweeper ….. even an airline pilot, just where would we be without them? But just how much do you know about the intricacies of each profession if you have never read the rule books? If you had read the BoE link you would see that (BoE Link) ”It is loans that create deposits not the other way round.” The stress test as I understand them determine the ability of the bank to cover a percentage of its liabilities, I believe that is now around 10%(?). Your deposit in the bank is of course a liability to the bank …. not an asset, because it is a loan to the bank and has to be repaid (In theory …. The Cyprus bail-in proved that to be not so!)

Without Banks, there would hardly be any Airline Pilots, because Airlines as we know them (many of them are struggling to stay afloat or are well funded but making losses) just wouldn't exist, because the average person in the Western World would not have the money or capacity to travel, and Business will be a fraction of what it is today, therefore, there will be less plumbers, electricians, and builders and even less road sweepers. The Banks fund all of this, and at the very least keep circulating the money that pays people to be able to run their small business, etc etc.

The Banks must be in a position to fund all their liabilities. They simply just can't do it overnight. There is a fractional Banking System for a reason. It allows money to be used for other things, and it basis itself on the principle that not everyone will want their money at the same time. It is also a fact that most of a bank's assets are highly liquid, which means they can access Billions of Dollars/Euros in a short space of time.

No they can't create money as they go along. The money must be secured against their reserves, and they get their reserves from customers, financial markets and central bank. If it were the case that Banks can just create money by extending IOUs then why do some Banks have a greater capacity than others. why not just keep doing this? because there is a limit to how far they can go.

Oh yes they do create money as they go along by making loans! (BoE link)“…….. every time a bank makes a loan it creates New Money”. These loans are secured against ‘collateral’ provided by the borrower and not as you list. The central bank holds the reserves and the excess reserves and these are lent between other banks deposits in the CB, but they cannot be loaned otherwise. (This is where LIBOR is applied). The banks capacity is actually only limited by what the market will stand but the CB will normally use interest rates to control the market demand for loans.

I think your article is a little off the mark. There are many Banks that actually rely on Deposits which they then convert to lending. This credit becomes a deposit in another Bank and if the Bank is lucky enough it probably becomes a deposit in the same Bank that created the loan. Here the Bank gets a double win, because it has generated a loan to someone which is an asset to the bank and revenue/interest generating and at the same time, the very same money lended is also a deposit in the bank which is an asset to the depositor but also to the Bank because this deposit is merely an IOU (liability) from the bank to the depositor - the bank is actually in possession of this money and free to use it as more lending or to invest on the money markets. This is the fractional banking system and it makes the world spin around.

This is not creating money! Please see the below quote from your article.

Although commercial banks create money through lending,
they cannot do so freely without limit. Banks are limited in
how much they can lend if they are to remain profitable in a
competitive banking system. Prudential regulation also acts
as a constraint on banks’ activities in order to maintain the
resilience of the financial system. And the households and
companies who receive the money created by new lending
may take actions that affect the stock of money — they
could quickly ‘destroy’ money by using it to repay their
existing debt, for instance.
Monetary policy acts as the ultimate limit on money
creation. The Bank of England aims to make sure the
amount of money creation in the economy is consistent with
low and stable inflation. In normal times, the Bank of
England implements monetary policy by setting the interest
rate on central bank reserves. This then influences a range of
interest rates in the economy, including those on bank loans

What they do is not scary at all. We have had this system for over a Century and the keep the Global Economy and markets ticking. Without them, we will be in economic oblivion. Imagine business and investors not being funded? How many people will be out of work overnight!

Not scary? It is when you know how they do it! Yes the system worked fairly well until the advent of electronic banking and the repeal of the Glass Steagall act. of 1933 by Clinton in 1999. It is now like a pilot trying to land a 777 onto a short runway, at night with no ILS or Approach ATC, no flaps, no air brakes, jammed rudder, no hydraulics and a crew high due to substance abuse ……... but of course the passengers don’t have a clue what is going on ….. keep the lights low and whatever you do ……… DON’T SCREAM !

Not scary at all! The Bank is obligated to disclose all their dealings and in most countries it is public information. They are as heavily regulated as the B777 in your above analogy.

If the Banking System Fails, it will be a train (plane) wreck similar to a B777 forced landing on a short runway, with no brakes, reverse thrust, spoilers, flaps or lift dumpers. The passengers will know about it when the Pilot Briefs the cabin and reality will hit home when they hear the final BRACE, BRACE, BRACE instruction before impact, just like in a Banking Failure when depositors are told that their deposits are frozen to prevent a Bank Run thus allowing the Bank to at least re-capitalize.

Luckily for us, these B777 events are extremely rare (almost non existent) as are complete Banking Collapses. There havbe been instances of Banks failing but I don't think there has ever been a total banking Collapse like there has in Cyprus and Iceland.

Pretty lucky eh?

The system needs banks as distributors of money but not the creators of it. Apart from that reservation ……… you are correct that their services are required

I fundamentally disagree. Yes Banks are distributors but they also need to keep the world going - even Governments. If you look at the US and UK, you will notice a mountain of debt. How do you think these Governments keep all basic services going such as Education and Health etc. What about the very expensive NHS. Would you rather hospitals turning people away to die on the streets?

What is scary is the extent of mismanagement that occurred in Cyprus. Elsewhere, the banks are quite healthy and there are many of them. They continue to go from strength to strength. And to be totally honest, without them, everything comes to a grinding halt in the economic landscape

.

Cyprus was not so much a case of mismanagement, because nobody actually broke the rules! They just didn’t have brains to see the dangers ….. all they saw were ever rising assets i.e NPL’s! The longer the period the loans were rolled over, the larger the banks assets because they were collecting interest. Don’t forget the commercial banks come under the watchful eye of the Central Bank and in the case of Cyprus this is the ECB. So how did this happen, how was it ALLOWED to happen?

It was mismanagement! You say they did not use their brains. same thing!

Loans are assets to the Bank which generate profits until they become NPLs. Once they are non performing loans, the Bank loses money! Ordinarily, the Bank is suppose to secure itself against such losses by repossessing the defaulters asset/s. not an easy thing in Cyprus.

They (Banks) continue to go from strength to strength

.

The banks worldwide are in crisis! But like the passengers on the 777 nobody is going to tell the rest of us that we are heading for mother of all crashes. But if you knock on the flight deck door and talk to the two guys sitting up front …… you may be able to get some of the truth out of them. They go from strength to strength very true but not by providing a service! They create the very commodity they control. The more they create the more they have to gamble with and the bigger the returns! Unfortunately the bigger the gamble, the greater the loss when it happens and all good things come to an end, eventually.

Not in my general experience. most of the Banks I Bank with are turning over Billions in profit.

There is no Banking Crisis in China or Australia, I can assure you.

Yes, in a B777, you will be briefed and you will be given instructions as to what you must do and to follow instructions such as adopting the brace position when you hear these instructions. No of course they are not going to tell you that you're gonna crash and probably die. The Cabin needs to be controlled as much as possible. A passenger frenzy is not going to help the situation just like a Bank Run will not help the situation because all that will do is bankrupt the Bank immediately and there will be flow on effects on other Banks and even more Bank Runs. The net result of this is that the country will go back to the stone age, with 70% unemployment and inflation of 10000%.

But I would have thought that it would be pretty clear to most passengers on the B777 just like it would be very clear to most depositors in a failing Bank.

[Robin Hood]

I wish you lived just round the corner! I am sure that with your intelligent replies (even if I think you are wrong) we could have some very interesting conversations over a cold beer or two?

I will reply ..... just give me time.